Barclays could face U.K. criminal charges for market manipulation

Britain's Serious Fraud Office to decide within a month whether to pursue charges

Barclays chairman Marcus Agius poses at a bank branch in London in September 2010. Agius resigned Monday after it emerged that employees of the British bank submitted false data on interbank borrowing rates. U.K. authorities are considering laying criminal charges against the bank on top of the $453 million US in fines from British and U.S. agencies the bank already faces. (Dylan Martinez/Reuters)

British prosecutors said Monday they are examining whether they can bring criminal charges on top of the massive fines imposed on Barclays bank for a financial market manipulation scandal.

The announcement followed hours after Barclays chairman Marcus Agius resigned and accepted ultimate responsibility for the misbehaviour between 2005 and 2009, which cost the company $453 million US in fines by U.S. and British agencies.

Britain's Serious Fraud Office said it hopes to decide whether to pursue criminal charges within a month.

"The SFO is aware of investigations in other jurisdictions and working with the relevant authorities," it said in a statement.

It wasn't immediately clear whether the SFO was considering charges against the company as well as individuals.

U.S. to pursue individuals, not company

The U.S. Justice Department said last week that individuals at Barclays could face prosecution but that the company would not because of its co-operation in revealing how the bank and individual employees submitted false data on interbank borrowing rates.

"Everybody is asking when are the other senior people at the top of Barclays going to take responsibility for the things that happened on their watch," Deputy Prime Minister Nick Clegg said.

Ed Miliband, leader of the opposition Labour Party, also called for Diamond to step down. "I want to see criminal sanctions against those who broke the law," he added.

Barclays shares were 3.4 per cent higher at 168.4 pence in midday trading in London Monday, holding on to earlier gains despite the SFO announcement.

Diamond, giving no hint that he was considering resignation, sent a memo to staff saying that the bank's own disciplinary process "will be completed swiftly now that regulatory reviews are complete."

Penalties could include clawing back bonuses and dismissal, he said.

"I am disappointed because many of these behaviours happened on my watch. It is my responsibility to make sure that it cannot happen again," Diamond said.

Lowballed interbank borrowing figures

Barclays is one of a number of banks which regularly submit estimates of what it will cost them to borrow from other banks. These estimates feed into calculation of the London interbank offered rate (LIBOR), which is used to determine payments from a range of derivatives contracts.

The London rate, and the related European interbank offered rate, are the benchmarks for over $500 trillion in global contracts, including loans and mortgages.

Barclays admitted that it had submitted lower than actual figures on its interbank borrowing during the credit crisis in 2007 and 2008. Several other global banks are being investigated in other countries for similar actions.

"As chairman, I am the ultimate guardian of the bank's reputation," said Agius, who has led Barclays' board since 2007. "Accordingly, the buck stops with me, and I must acknowledge responsibility by standing aside."

Agius's position was particularly sensitive as he was also chairman of the British Bankers' Association, the trade body that collects the banks' rate submissions to calculate the LIBOR. He resigned from that post as well on Monday.

Diamond said that on "the majority of days," traders didn't ask for false submissions, and in some cases, such requests were rejected by employees who submitted data.

"The attempted adjustments were, on average, small," Diamond said, and he quoted the Justice Department as saying the LIBOR was affected only on "some occasions."

In-house review to come

In a further attempt to soothe critics, Agius said Michael Rake, a senior independent director of the bank, has been appointed to lead an in-house review of all past practices and to publish a report of its findings and develop a new, mandatory code of conduct for everyone at Barclays.

Agius will remain as chairman until a successor is appointed, the bank said.

He was paid 751,000 pounds (1.18 million US) by Barclays in 2011, but his final payoff was not immediately announced.

Rather than take the heat off Diamond, Agius's departure may leave the CEO more exposed.

Diamond is likely to face a grilling Wednesday when he appears before a group of lawmakers. His critics say he is culpable because he set the aggressive style at Barclays Capital, the investment banking operation he previously led.

He has said the actions by Barclays and its traders were wrong, but offered no suggestion he might leave his post.

"Even taking account of the abnormal market conditions at the height of the financial crisis, and that the motivation was to protect the bank, I accept that the decision to lower submissions was wrong," Diamond said last week in a letter to Andrew Tyrie, chairman of the House of Commons Treasury Committee.

Strong leader needed

In other cases, regulators found that individual Barclays traders encouraged colleagues to file false reports to protect their own dealings.

Among other banks being investigated, Royal Bank of Scotland — 82 per cent owned by British taxpayers — declined to comment Monday on reports it had fired three traders in London and one in Singapore last year because of interest rate manipulation.

"RBS Group continues to co-operate with the investigations and liaise with the relevant regulators," the bank said.

Agius, 65, joined the Barclays board in 2006 and became chairman in January 2007.

His banking career began when he joined Lazard, a major asset management and advisory company, in 1972. He served as chairman of Lazard London and then as deputy chairman of the company's worldwide operations.

"If anything, by falling on his own sword, Mr. Agius leaves the board temporarily weakened at a time when a strong leader is required to make tough decisions," said Gary Greenwood, analyst at Shore Capital.

"While the departure of Mr. Agius will grab the headlines today, the bigger issue remains whether Mr. Diamond should also remain in his role," Greenwood added.

"From a pure operational perspective it is not clear to us that his removal would be beneficial, but we question whether the negative sentiment towards the company, of which he is the focus, can be repaired while he remains at the helm."